Page 570 - TaxAdviser_2022

ESTATES, TRUSTS & GIFTS

in the donor’s gross estate. The Code, 2. Determine a hypothetical gift tax gift tax and the credit amounts are com-
however, distinguishes between these two on all post-1976 taxable gifts;8 puted using the gift tax rates in effect at
types of transfers.5 The proposed regula- 3. Determine the net tentative estate tax the date of death, when computing estate
tions generally would deny the benefit by subtracting the gift tax payable de- tax, a credit is provided for all credits
of the special rule to “includible gifts” by termined in Step 2 from the tentative provided on includible gifts in the year
maintaining the Code’s distinction be- tax determined in Step 1;9 the gifts were made. This includes credit
tween completed gifts treated as adjusted 4. Determine a credit amount (which amounts attributable to the $10 mil-
taxable gifts and those treated as testa- may not exceed the net tentative es- lion BEA.
mentary transfers. In either case, the Code tate tax) equal to the tentative tax on
ensures that the gift is treated consistently the applicable exclusion amount in More about the proposed
with respect to credits allowable in the effect on the date of death;10 and exception
year in which the gift was made. 5. Subtract the credit amount deter- The new proposed regulations would
As the preamble goes on to discuss, the mined in Step 4 from the net tenta- provide an exception to the special rule
estate tax on the transfer of a decedent’s tive estate tax determined in Step 3.11 for includible gifts. This exception was
taxable estate at death is calculated in a The preamble notes that the exclu- adopted in response to a public com-
five-step computation under Secs. 2001 sion from adjusted taxable gifts of trans- ment received on the 2018 proposed
and 2010, applying the same rate schedule fers includible in the gross estate does regulations that preceded T.D. 9884.
used for gift tax purposes:6 not affect Step 2, and gift tax is payable The commenter had asked whether a
1. Determine a tentative tax on the sum on all post-1976 taxable gifts, regardless special rule should apply to taxable gifts
of the taxable estate and the adjusted of whether they are included in the gross made during the increased BEA period
taxable gifts;7 estate. Because both the hypothetical if the gifts are essentially testamentary

EXECUTIVE SUMMARY using the higher of (1) the BEA • In Rev. Proc. 2022-32, the IRS
applicable on the decedent’s date extends to five years the period
• In one of several noteworthy of death or (2) the BEA applicable available for estates not required
developments in estate taxation to gifts made during the dece- to file estate tax returns under
from July 2021 through July 2022, dent’s life. Sec. 6018(a) to use a simplified
Treasury and the IRS issued final method to obtain an extension of
regulations in September 2021 • In June 2022, Treasury and the time to file a return to elect por-
establishing a new $67 user fee IRS proposed regulations that tability of the deceased spousal
for estates to receive an estate provide guidance on the proper unused exclusion amount.
tax closing letter. use of present-value principles in
determining the amount an estate • In Connelly, a federal district court
• In April 2022, Treasury and may deduct for funeral expenses, in Missouri held that when one of
the IRS proposed regulations administration expenses, and the two co-owners of a business
concerning the basic exclusion certain claims. In addition, the died and the company received
amount (BEA) used in computing proposed regulations address life insurance proceeds in con-
federal estate and gift taxes. The the deductibility of certain types nection with a buy-sell agree-
proposed regulations add an of interest expense and amounts ment, those insurance proceeds
exception for includible gifts to paid under a decedent’s personal should be counted in determining
the special rule adopted in 2019 guaranty. how much the decedent’s shares
regulations that allows the estate in the company were worth for
to compute its estate tax credit purposes of his estate tax.

5. Sec. 2001(b) excludes from “adjusted taxable gifts” any gifts that are 7. Sec. 2002(b)(1).
includible in the gross estate. Similarly, Sec. 2701(e)(6) and Regs. Sec. 8. Secs. 2001(b)(2) and (g).
25.2701-5 remove from adjusted taxable gifts any transfers includible in 9. Sec. 2001(b).
the gross estate that had already been subject to the Sec. 2701 special 10. Secs. 2010(a) and (c).
valuation rules. 11. Sec. 2010(a)
6. As stated in the preamble to the proposed regulations under Sec. 2010
on Nov. 23, 2018, REG-106706-18.

28 November 2022 The Tax Adviser